Will COP29 be an enabling COP?

The 29th UN Climate Change Conference COP29 in Baku comes as the world tackles ever more extreme weather events as well as conflict in the Middle East and Ukraine. It will have to follow up on the first-ever stocktake of global climate action and the call to gradually transition away from fossil fuels that was agreed at last year’s COP28.

Like the United Arab Emirates, which hosted COP28, Azerbaijan’s economy largely relies on oil and gas production, which accounts for around half of the country’s GDP and over 90% of its export revenues¹. While it might not be conducive to concrete actions aimed at transitioning from fossil fuels in the short term, the current backdrop of exacerbated geopolitical risks and war raises more impactful questions.

Supply disruptions have the potential to weigh on energy prices - around 20% of today’s oil and liquified natural gas supplies flow through the Strait of Hormuz² - in turn impacting the future of energy demand alongside energy security obligations. It is likely to colour the debates at this upcoming COP on future carbon dioxide (CO₂) emissions data.

Meanwhile, key negotiations are expected to widely focus on climate finance.

Climate and adaptation financing: from billions to trillions

Developed countries’ pledge to mobilise US$100bn annually by 2020 to support climate action in developing countries was only met in 2022, still with criticism related to a high proportion of loans.

A commitment was taken to set a New Collective Quantified Goal (NCQG) for the period after 2025, a point COP29 aims to address. While no precise number has been put forward during negotiations, requests have tended to hover about the $1trn mark, indicating the high level of pressure.

Of note is the new Climate Finance Action Fund (CFAF), whose creation was announced with the COP29 presidency. The CFAF is due to be capitalised with at least $1bn voluntary contributions from fossil fuel producing countries and companies with the aim of catalysing public and private sectors across mitigation and adaptation in developing countries.

Voluntary contributions fall short of a regulatory levy on fossil fuels that some campaigners have been calling for, as well as the global amounts needed to be put on the table. It is therefore crucial that those voluntary contributions do not serve as an excuse to continuously postpone the effective “transitioning” away from fossil fuels” agreed at COP28.

With regards to carbon markets, and while COP28 failed to finalise Article 6 rules and modalities, we will see if COP29 manages to move forward on transparency and integrity around Article 6.2. The Bonn Climate Change Conference held in June 2024 did not manage to reach an agreement on those fronts.³ In the meantime, emission avoidance projects will continue to be excluded for the next four years, preserving the integrity of the framework, albeit temporarily.

Other financing initiatives – no gamechangers but progress possible

Loss and Damage Fund

We will closely monitor if further details are released related to the concrete operationalisation of the Loss and Damage Fund, as well as the amounts ($800m promised in 2023). Of course, much remains to be done before it starts to be operational (who will be the beneficiaries and the donors? What kind of projects and which format? etc.), but at least things are moving in the right direction alongside the appointment of the American-Senegalese Ibrahima Diong as its executive director for a period of four years.

Multilateral Development Banks

The stocktake published by the G20 Independent Expert Group⁴ in April 2024 noted that the pace of Multilateral Development Banks (MDB) reforms remains insufficient to have a material impact on sustainable development.

At this stage, the combined effect of the reforms carried out translate into an additional $30bn-$40bn of annual lending by MDBs. Barriers to taking on more risk and expanding pipelines stand out as the main obstacles. New guarantee designs, unfunded risk participations and sovereign portfolio securitisations are additional levers being discussed, but we doubt that anything concrete will come out of COP29.

Climate ambition – avoiding the emissions cliff edge

Climate ambition at COP29 is likely to remain confined to advocating enhanced Nationally Determined Contributions (NDCs) and advancing on 2030 renewable energy and energy efficiency targets announced at COP28.

As part of the Paris Agreement, countries are to submit the next round of NDCs - new or updated - in 2025 and 2030. It means that early next year, all countries will have to set new emissions targets for 2035 while revising their 2030 targets.

While global greenhouse gas emissions must be cut by between 21% and 43% below 2019 levels by 2030 to limit global warming to between 2°C and 1.5°C⁴, respectively, the full implementation of all NDCs - those submitted by September 2022 - would imply an 8% reduction by 2030⁵. We are far off track, even more as this 8% is based on the assumption that all conditional elements of the NDCs are implemented.

This is a clear indication that NDCs need to be significantly scaled up now, if we want to avoid an emissions cliff edge post 2030.

More than targets, implementation will be equally scrutinised, in a context where only 48% of the parties indicated that they have integrated their NDC targets into national legislative processes. In that sense, the publication by December 2024 of countries’ first national progress reports (Biennial Transparency Reports) should be an important milestone.

In the same vein, China’s announcement in August 2024 of its shift towards stricter control of its carbon emissions post 2030 is to be noted. It could potentially nudge other economies to consider doing the same as they prepare updated climate pledges.

The importance of policies is undeniable and there are already some positives. Rapidly increasing deployment of clean energy technologies, in particular solar and wind, has already begun to dampen the upward trajectory of CO₂ emissions, opening the door to a structural slowdown in energy-related CO₂ emissions. This analysis from the International Energy Agency reinforces the importance of COP28 targets related to a tripling of global renewable energy capacity by 2030 and a doubling of energy efficiency rate by 2030, and we expect COP29 to follow suit through a focus on transport and storage infrastructure.

^{1 Azerbaijan - Market Overview (trade.gov)}

^{2 World Energy Outlook 2024 – Analysis - IEA}

^{3 Will Bonn reset lead to Baku handshake on Paris Agreement's Article 6? - Carbon Market Watch}

^{4 Implementing MDB Reforms_ A Stocktake (icrier.org)}

^{5 IPCC_AR6_SYR_SPM.pdf}

^{6 2023 NDC Synthesis Report | UNFCCC, Projected GHG Emissions Levels}